OH. 17 CHANGES DUE TO MONETARY FACTORS 263

into the monetary system will increase the reserve-resources of the member banks, it will, for reasonsalready explained, render the latter more willinglenders on easier terms ; that is to say, the newmoney stimulates the banks to put resources atthe disposal of those borrowers who are ready toemploy them, if they are offered on satisfactoryterms. Conversely, a withdrawal of cash from themonetary system, by reducing the reserve-resources ofthe member banks, influences the latter to withdrawresources from borrowers.

Now it may be that part of the proceeds of thenew loans will find their way indirectly to the Savings-deposits or to the Business-deposits B, thus augment-ing the Financial Circulation. But the rest must,directly or eventually, find its way into the hands ofthe entrepreneurs. This being so, it is, in general,probable that the greater ease of borrowing will—whatever other effects it may also have—influenceentrepreneurs in one or other of three ways :

(i.) The lower rate of interest will stimulate theproduction of capital-goods by raising their prices.Moreover this tendency may be further encouraged if atthe same time the effect of ampler and cheaper moneyfor the Financial Circulation is having the effect ofraising security-prices.

(ii.) In so far as there was previously an un-satisfied fringe of would-be entrepreneur borrowers(which, as we shall see subsequently, is sometimes thecase) who were ready to borrow, if they had been able,even at the old terms, and also, on the other hand, anunemployed fringe of the factors of production, certainentrepreneurs will now be enabled to offer employ-ment to an additional quantity of the factors of pro-duction at the existing rates of remuneration . 1

1 Since the rate of remuneration to the factor Capital is less than before,owing to the fall in the rate of interest, the above is compatible with anincrease (but probably only a small one) to the other factors of production.